Research analysts can create and share model portfolios with clients. This guide explains what goes into a model portfolio, the disclosures it requires and the records that help keep the process in check.
What is a model portfolio?
A model portfolio is a ready-made investment recipe created by a research analyst. It is a basket of stocks, bonds and other securities put together in a research report. The report lists the securities and suggests how much of each security - its weightage - should be included in the portfolio.
Key note: If the report does not specify these weightages, simply listing or summarising recommended securities does not qualify as a model portfolio. It is instead a general recommendation without the structure of an actual portfolio.
Mandatory disclosures in a model portfolio report
When issuing a model portfolio report, include disclosures that give investors the important details needed to make an informed decision.
- Factsheet: Every report must include a factsheet summarising the rationale behind the portfolio, methodology, launch date, update date and type of model portfolio.
- Methodology: Explain clearly how securities were selected - whether through fundamental analysis, technical analysis or another approach. State any specific theme, such as 'Make in India', or sector focus, such as Auto or Textile.
- Labelling: The portfolio must be true to label. Its name should match its purpose; for example, a large-cap portfolio should say 'Large-Cap' and include a one-line description of its theme or objective.
- Investment horizon: State how long the portfolio is intended to be held so investors can align it with their own timelines.
- Frequency of review and update: State how often the portfolio will be reviewed or updated. Any rebalancing must fit the framework and be communicated to investors with a rationale.
- Risk disclosures: Clearly state the potential risks associated with the portfolio.
- Benchmarking: Compare performance with a relevant benchmark index - for example, an auto-sector portfolio could use the Nifty Auto Index and a mid-cap portfolio might use the BSE Midcap Index.
Other important points
- Launch date: The date on which the model portfolio report is first issued by the research analyst.
- Update date: The date on which the model portfolio is reviewed and updated.
- Audit requirement: Maintain proper records of launch and update dates, and review the portfolio regularly as needed to meet audit requirements.
Understanding these requirements helps research analysts create and share model portfolios that are informative, compliant and useful in building stronger client relationships.
Article details
For questions or further guidance, write to sattvalawandassociates@gmail.com.
Disclaimer: While every effort has been made to ensure the accuracy of this article, Sattvalawandassociates@gmail.com assumes no responsibility for any errors or omissions. This document does not substitute professional advice, and readers should seek guidance before acting on any information contained herein.
Comments & questions
Continue the conversation.
Have a question about this note or a related requirement? We will add a comments function here in a later phase. Until then, enquiries can be sent directly to our team.
Send an enquiry